4.2 Current Asset

4.2.1 Cash, Cash Equivalents and Liquidity

1. Cash Equivalents

A cash equivalent is an investment that is readily convertible to a known amount of cash and is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes.

Examples: temporary investments in commercial paper, treasury hills, and money market funds.

2. Reconciling the Bank Balance

Balance per bank	XX
Add: Deposits in transit	XX
	XX
Less: Outstanding checks	(XX)
Adjusted bank balance	XX
Balance per books	XX
Add: EFT receipts	XX
Bank collection	XX
Interest revenue	XX
	XX
Less: Service charge	XX
NSF	XX
EFT payment	XX
Check printing charge	XX
Other bank charge	XX (XX)
Adjusted book balance	XX

4.2.2 Inventory and Cost of Goods Sold

1  Definition

Inventories are assets

v Held for sale in the ordinary course of business

v In the process of production for such sale

v In the form of materials or supplies to be consumed in the production process or in the rendering of services.

2  Measurement of inventories

IAS 2 Inventories states that 'Inventories should be measured at the lower of cost and net realisable value.’

3  Cost of inventories

The cost of inventories will consist of all costs of:

Purchase

Costs of conversion

Other costs incurred in bringing the inventories to their present location and condition

4   Cost formula

The cost of inventories should be assigned by using the first-in, first-out (FIFO) or weighted average cost formulas.

5  Net realisable value (NRV)

Measurement of inventories  

IAS 2 Inventories states that 'Inventories should be measured at the lower of cost and net realisable value.'

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

NRV= estimated selling price less the estimated costs 

6 Cost of Goods Sales

Opening inventory value	X
Add cost of purchases	X
Less closing inventory value	(X)
Cost of goods sold	X